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2012 DIGILAW 628 (GUJ)

Oriental Manufacturers P. Ltd. , In Re v. ABC

2012-08-30

ABHILASHA KUMARI

body2012
JUDGMENT : Abhilasha Kumari, J. Both these petitions have been filed by the petitioner-companies under sections 391 to 394 of the Companies Act, 1956, seeking sanction of a scheme of arrangement in the nature of amalgamation or Oriental Manufacturers P. Ltd. (the petitioner-transferor company) with Sarabhai Machinery P. Ltd. (the transferee company and petitioner of Company Petition No. 73 of 2012). 2. It is stated in the petitions that both the companies belong to the same management and their commercial activities are interconnected. That, both the petitioner-companies are well established engineering companies with a good technical and marketing base. It is stated that the amalgamation is proposed in order to achieve synergic benefits. Details of the benefits envisaged due to the proposed scheme of amalgamation have been enumerated in the petitions. 3. It has been pointed out that by order dated February 22, 2012, passed in Company Application No. 77 of 2012, the meetings of the equity shareholders and the sole secured creditor of the transferor company were dispensed with in view of the written consent letters from all of them being placed on record. Similarly, vide order dated February 22, 2012, passed in Company Application No. 78 of 2012, the meetings of the equity shareholders of the transferee company were also dispensed with taking into consideration the written consent letters from all of them being placed on record. 4. However, vide the aforesaid order dated February 22, 2012, the meeting of the unsecured creditors of the transferor company was directed to be convened in order to obtain their approval to the proposed scheme. It is stated that the said meeting was duly convened on April 5, 2012 and the unsecured creditors of the transferor company unanimously approved the proposed scheme at the said meeting. On obtaining the approval from all the concerned parties, the present petitions have been preferred for obtaining the sanction of the scheme from this court. 5. The petitions were admitted vide order dated April 25, 2012. Public notices for the same were duly advertised in the English daily newspaper Indian Express and the Gujarati daily newspaper Sandesh, on May 24, 2012, in Ahmedabad editions of the said newspapers for the transferor company and the Vadodara editions of the said newspapers for the transferee company. The publication in the Government Gazette was dispensed with, as is confirmed by the affidavits dated June 4, 2012. The publication in the Government Gazette was dispensed with, as is confirmed by the affidavits dated June 4, 2012. It is stated that none has come forward with any objections to the said petitions even after publication, except one Shri Harish Madhukar Jamdar in his capacity as President of Sarabhai Kamdar General Union of Vadodara ("the Union" for short), vide letter dated June 11, 2012. This aspect has also been confirmed by the additional affidavit dated July 25, 2012. 6. Notice of the petition of the transferee company was served upon the official liquidator attached to this court. The official liquidator has filed a report dated July 16, 2012, wherein it is observed that the affairs of the transferor company have not been conducted in a manner prejudicial to the interest of its members or to the public interest. However, the official liquidator has requested this court to direct the transferor company to maintain its books of account and records for a period of eight years form the date of sanctioning the scheme and not to disposed of the same without the prior permission of the Central Government. 7. Notice of the petitions has been served upon the Central Government, pursuant to which Mr. M. Iqbal A. Shaikh, learned Central Government Counsel, has appeared for the Central Government. An affidavit dated June 21, 2012, has been filed by Mr. Kashmir Lal Kamboj, the Regional Director (In charge), North Western Region, Ministry of Corporate Affairs, wherein certain observations have been made, which shall be dealt with in detail hereinafter. 8. The attention of the court is drawn to the objections raised by the objector Shri Harish Madhukar Jamdar, President of the Union, in the form of a letter dated June 11, 2012. Sarabhai Machinery P. Ltd. (the transferee company and petitioner of Company Petition No. 73 of 2012) has filed a comprehensive additional affidavit dated July 25, 2012, dealing with the observations raised by the Regional Director as well as the issues raised by the objector. This court is informed that a copy of the said affidavit has been served upon the objector by registered post acknowledgment due and the confirmation in the form of a certificate issued by the Postal Department has been placed on record today. This court is informed that a copy of the said affidavit has been served upon the objector by registered post acknowledgment due and the confirmation in the form of a certificate issued by the Postal Department has been placed on record today. None appears on behalf of the objector, therefore, the issues raised by him are being considered by this court on the basis of the documents placed on record. 9. While dealing with the issues raised by the objector, it has been stated in the affidavit filed by the petitioner-transferee company that the objections have been filed under an apparent misconception and are the result of mistaken identity. All the contentions qua the petitioner are denied and it is pointed out that the objector has no locus standi with regard to the present proceedings, that is, the proposed scheme, and has nothing to do with the petitioner-transferee company. It is stated that the objector has assumed that the petitioner-transferee company belongs to Ambalal Sarabhai Enterprises Ltd., often referred to as ASE group, and it seems that the said Labour Union has some pending litigations with some of the group companies of ASE before several forums in respect of their own disputes. This aspect emerges from the copies of the Registrar of Companies records and certain orders passed in the litigation between ASE and the Union that have been placed on record. 10. Heard Mr. S.N. Soparkar, the learned senior advocate with Mrs. Swati Soparkar, learned counsel for the petitioners and Mr. M. Iqbal A. Shaikh, learned Central Government Counsel. 11. After considering the submissions made before this court as well as the material on record, in so far as the objection raised by the objector is concerned, it appears that the objector, who is the President of Sarabhai Kamdar General Union, is labouring under the apparent misconception that the petitioner-transferee company belongs to the Ambalal Sarabhai Enterprises Ltd. (ASE group). It appears that the Labour Union has some pending litigations with some of the group companies of ASE. It has been submitted by learned senior counsel on behalf of the petitioners that the petitioner-transferee company is neither a part of the ASE group nor is party to any pending litigations between the Union and the ASE group either before the Industrial Tribunal or any other court, therefore, it is not bound by any orders passed in these litigations. It has been submitted by learned senior counsel on behalf of the petitioners that the petitioner-transferee company is neither a part of the ASE group nor is party to any pending litigations between the Union and the ASE group either before the Industrial Tribunal or any other court, therefore, it is not bound by any orders passed in these litigations. It is submitted that though it is true that Sarabhai Machinery P. Ltd. (the petitioner-transferee company) was originally a part of the ASE group, however, the present management of the company has taken over the said company by purchasing all its shares as far back as in the year 1994. A copy of the annual return filed with the Registrar of Companies in November, 1994 is annexed as annexure A which shows that since that date, the petitioner-transferee company has ceased to be a part of the ASE group. It is submitted that along with the transfer of shares of the said company, the complete control and management of the company has now come to the Oriental group, which has no common directors or interest with the ASE group. Attention of the court is also drawn to the fact that the litigations referred to in the letter of the objector pertaining to the said Union are with Sarabhai M. Chemicals Ltd., and its workers. A perusal of some of the orders placed on record makes it clear that none of them have been passed against the petitioner-transferee company. A list has been produced at paragraph 3 as well as in the form of annexure by the objector which includes the name of the petitioner-transferee company. However, a perusal of the same makes it clear that it does not indicate the period or date of the company being a part of ASE group and has no reference to any of the litigations. 12. In view of the above facts and circumstances and as there is no material on record to indicate that the petitioner-transferee company is involved in any litigation with the Union, the objections filed by the objector to the proposed scheme cannot be sustained. 12. In view of the above facts and circumstances and as there is no material on record to indicate that the petitioner-transferee company is involved in any litigation with the Union, the objections filed by the objector to the proposed scheme cannot be sustained. In view of the fact that the rights and interests of the members of the said Trade Union are not in any way connected to, or affected by, the proposed scheme, the objections raised by the objector against the sanction of the scheme are not acceptable. 13. The court may now deal with the issues raised by the Regional Director by way of the affidavit dated June 21, 2012. The petitioners have provided explanations and justifications for the same vide the composite affidavit dated July 25, 2012. 14. The first observation made by the Regional Director is to the effect that clause 10.1 of the scheme pertaining to accounting entries/adjustments to be made in the books of account of the petitioner-companies ensures compliance of Accounting Standard 14 by following purchase method as prescribed under the said Accounting Standard, but the proposal made vide subsequent sub-clause 10.4 is not in accordance with the requirement of Accounting Standard 14 as well as the generally accepted principles of accounting. It has been observed by the Regional Director that in sub- clause 10.4, it is proposed that the amalgamation reserve arising due to excess of the net value of assets of the transferor company, over the amount of consideration to be paid by the transferee company, shall be treated as free reserve of the transferee company and available for distribution of dividend. It is observed that such a proposal made in the scheme is not in accordance with the requirements of Accounting Standard 14 as well as the generally accepted principles of accounting. It is submitted by the learned Central Government counsel that the nature of amalgamation reserve arrived due to transfer of assets of a company being of a capital nature, is not available for distribution of dividend and this court may direct the petitioner-transferee company to comply with the requirement of Accounting Standard 14 strictly. 15. With regard to the first observation, it has been submitted by Mr. 15. With regard to the first observation, it has been submitted by Mr. S. N. Soparkar, learned senior counsel on behalf of the petitioner-companies as well as averred in the additional affidavit filed by the petitioners that section 211(3B) of the Companies Act, 1956, itself envisages a situation of deviation from the Accounting Standard. It provides that if the practice adopted for such accounting entry varies from the said standard, necessary disclosure should be made in the financial statements. It is submitted that in view of the decisions of various High Courts, including this court, on the said issue, the petitioner hereby undertakes to abide by the directions that this court may issue with regard to the said disclosures to be made in the first financial statement of the transferee company after the scheme is sanctioned. 16. Learned senior counsel has drawn attention to the view taken by the Bombay High Court in the case of Hindalco Industries Ltd., In re (2009) 151 Comp Cas 446 and a Division Bench judgment of this court in Adishree Tradelinks P. Ltd., In re (O. J. Appeal No. 31 of 2012 in Company Petition No. 132 of 2011 in Company Application No. 440 of 2011 and allied matters, decided on July 30, 2012 (2013) 176 Comp Cas 67), wherein, the Division Bench has taken the view that such amalgamation reserve can be utilised for the purpose of declaring dividends. 17. The second observation made by the Regional Director is to the effect that vide order dated February 22, 2012, passed in Company Application No. 78 of 2012, filed by the petitioner-transferee company, the meeting of the shareholders of the said company was dispensed with. However, there appears to be no reference of either dispensation of the meeting of the creditors or convening of the meeting of such creditors. It is stated by the Regional Director that as per the audited balance-sheet of the transferee company as on March 31, 2011, there are sundry creditors amounting to Rs.2,15,98,880 which are also creditors of the company, therefore, the scheme is required to be approved by the members and creditors of the transferor and transferee companies as required under sections 391 to 394 of the Companies Act, 1956. It is stated by the Regional Director that this court may direct the petitioner-transferee company to place on record of these proceedings, the consent letters/approvals of the creditors. It is stated by the Regional Director that this court may direct the petitioner-transferee company to place on record of these proceedings, the consent letters/approvals of the creditors. 18. With regard to the second observation, pertaining to the approval of the creditors of the transferee company, it is averred in the additional affidavit filed by the petitioners and as also submitted by learned senior counsel that the proposed scheme does not envisage any compromise or arrangement with the creditors of the transferee company. That, the transferee company shall continue to exist and carry on its commercial activities even after the scheme is made effective. Further, both the transferor and transferee companies are profit making companies and in view thereof, the rights and interests of the creditors of the transferee company are not likely to be affected in any manner. It is further submitted that considering the above facts and circumstances of the case, this court has not issued directions with regard to the creditors of the transferee company. In support of the above submission, reliance has been placed upon Union of India v. Ambalal Sarabhai Enterprises Ltd. (1984) 55 Comp Cas 623 (Guj). 19. It is noteworthy that despite the publication in the newspapers inviting objections to the proposed scheme, none of the creditors of the transferee company have come up with any objections. This aspect reaffirms the contention of the petitioner that their rights and interests are not adversely affected due to the scheme and hence, it is not necessary to issue directions to place on record their consent/approval at this stage. 20. Considering the explanation rendered by the petitioners and observations made by a Division Bench of this court in the matter of Union of India v. Ambalal Sarabhai Enterprises Ltd. (1984) 55 Comp Cas 623, it is held that obtaining the approval of the creditors of the transferee company is not necessary and no such direction is required to be issued at this stage. This observation of the Regional Director, therefore, does not survive. 21. This observation of the Regional Director, therefore, does not survive. 21. The third observation of the Regional Director is regarding clause 11.2 of the scheme which provides that upon the scheme being effective, subject to availability, the name of the transferee company shall be changed to Oriental Enterprises P. Ltd. It is stated by the Regional Director that the name of the company can be changed only after following the procedure as laid down under section 20 read with section 21 of the Companies Act, 1956, and the guidelines issued by the Ministry of Corporate Affairs under the said provisions, and filing of necessary forms with the Registrar of Companies upon payment of requisite filing of fees. It is stated that this court may, therefore, direct the petitioner-company to follow the requisite procedure for change of name in order to ascertain addition to ascertaining the availability of name. 22. With regard to the third observation pertaining to separate procedure to be followed for proposed change of name of the transferee company, it has been submitted on behalf of the petitioners that vide a large number of decisions pronounced and accepted by the High Courts across the country, including Gujarat High Court, the principle of "single window clearance" has been settled. Under the said principle, all the proposals which are made as an integral part of the scheme are approved by the High Courts as the comprehensive approval and separate procedure for complying with several provisions of the Act are not required to be followed separately. It has been pointed out that in the present case, the petitioner-company has already initiated the process of applying for the aforesaid name in order to verify the availability and it is expected that the same shall be confirmed by the Registrar of Companies in the near future. 23. In support of the above submissions, reference has been made to judgments of this court, dated May 6, 2008, in the matter of Mekaster Valves and Engineering Services P. Ltd., In re (in Company Petition No. 54 of 2008) (2009) 149 Comp Cas 593 and dated August 3, 2007, in the matter of Norfolk Infotech P. Ltd., In re (in Company Petition No. 30 of 2007) (2008) 142 Comp Cas 752 (Guj) and connected matters. 24. 24. In view of the above, no further directions are required to be given to the petitioner for undertaking separate procedure for the said purpose and the order of this court sanctioning the scheme as a whole should suffice for the Registrar of Companies to effect the change envisaged under the scheme, though subject to availability. 25. The fourth observation raised by the Regional Director pertains to the actual date of holding of the annual general meeting. 26. With regard to the same, the petitioners have stated in the additional affidavit that the said meeting was actually convened on September 30, 2011 and is in accordance with the reports on record of the Registrar of Companies, and not on September 23, 2011, though the date of September 23, 2011, shown in the notice attached to the balance-sheet placed on the record of the petition has appeared due to an inadvertent typographical error which is not a material defect and has no relevance to the present scheme as such. 27. In view of the explanation offered by the petitioner-companies, the fourth observation of the Regional Director has been adequately addressed and does not survive. 28. The official liquidator has filed a report dated July 16, 2012, wherein it has been stated in view of the report of the chartered accountant, that the affairs of the petitioner-transferor company have not been conducted in a manner prejudicial to the interest of its members or public at large. It is, however, observed that the transferor-company should preserve its books of account, papers and records and should not dispose of the records without prior permission of the Central Government under section 396A of the Companies Act. The petitioner-companies are accordingly directed to keep the books and records of the transferor company for a period of eight years from the date of sanctioning the scheme and not to dispose of the same without prior permission of the Central Government. 29. It appears from the material on record that the proposed scheme would be in the interest of the company and its members and creditors. For the aforestated reasons, the prayers made in paragraph 21(a) of Company Petition No. 72 of 2012 and paragraph 16(a) of Company Petition No. 73 of 2012 are hereby granted. The petitions are disposed of in the above terms. 30. For the aforestated reasons, the prayers made in paragraph 21(a) of Company Petition No. 72 of 2012 and paragraph 16(a) of Company Petition No. 73 of 2012 are hereby granted. The petitions are disposed of in the above terms. 30. In so far as the costs to be paid to the learned Central Government Standing Counsel are concerned, the same are quantified at Rs.7,500 per petition and may be paid to Mr. M. Iqbal A. Shaikh, learned Central Government Counsel. Cost of Rs.5,000 for the transferor company be paid to the office of the official liquidator.